To track the intended -- and more importantly, unintended -- consequences of policies,market movements,buyout deals and regulatory censure. This forum will map the multiplier effect of what may seem minor events initially but spread out far and wide.

10/14/2010

More faces disappear in the US labor force as unemployed lose heart

US’ Bureau of Labor Statistics reported a stagnant unemployment rate of 9.6% last Friday. Now depending on whether you are a pessimist or an optimist, you’ll view it as bad news or good news. But that’s not why I’m talking about it. Hidden deep inside the pile of published labor statistics that day, was one tiny piece of rather disconcerting data.

The number of ‘discouraged workers’ among those not employed, shot up 71.25% to 1,209,000 in September 2010, said the government department. Of this, 730,000 were men and 478,000 women. The net addition overall, to save everyone the math, was 503,000. These people are simply not in the labor force anymore.

Now I would worry about that if I was a policy maker.

Why are these people losing heart and no longer ‘actively’ seeking work? How long were they unemployed before they decided to call it quits from the labor force? What will they do now for a living? What about the families of these 730,000 men? After all, the answer to these questions will have important ramifications for the labor market and consumption dynamics?

Have these ‘discouraged workers’ enrolled for unemployment benefits or not? That’ll determine the tab taxpaying citizens who have a job, are picking.

The government data, in a footnote, explains who all it counts as ‘discouraged workers’: “those who did not actively look for work in the prior 4 weeks for reasons such as thinks no work available, could not find work, lacks schooling or training, employer thinks too young or old, and other types of discrimination.”

Now this raises more questions than it answers. Also the longer a person is unemployed, the less employable he becomes and that can spike the population of these disheartened workers. The number of those unemployed for 27 weeks or more has increased to 6,123,000 last month compared to 5,447,000 in September 2009, implying more people are sitting out and for longer.

My gut feel is that when an economy crawls out of its dump at a slow pace – US economy is expected to grow at 2.6% in 2010 and 1.9% in 2011 – it fatigues its labor force, a part of which is just filing out job applications day after day. A dull economy – characterized by low hiring and consumption levels – creates more of these discouraged workers and more of these workers overtime contribute to sluggishness of the economy. This completes the vicious circle.

The silver lining is that discouraged workers will be easy to woo back. They just need to see their neighbours and friends get jobs and better ones and they will re-enter the job pool in a jiffy.

These workers are not in the labor force and therefore don’t worsen the unemployment numbers. If that is so, then is anybody looking out at all for these disappearing faces in the workforce?